IRS Working to ‘Clean Up’ Section 336(e) Rules, Official Says

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By David McAfee

Dec. 2 — The IRS is working on an open guidance project related to the final rules under tax code Section 336(e), which allow corporations to treat a disposition of stock of a target company as a disposition of assets under certain conditions, a senior agency official said.

Mark Weiss, chief of Branch 2 in the Internal Revenue Service's Office of Associate Chief Counsel (Corporate), Dec. 2 told tax practitioners that the “clean up-type project” will address situations in which the rules “break down altogether.” The goal of the project, he said, is to answer questions where the rules aren't working or other places in which the IRS can provide a lot of help with “minimal effort.”

“These rules work really well in situations in which all the stock is sold on one day,” Weiss said during a Practising Law Institute conference in Los Angeles. “They work less well when you have a disposition or sale that spans a period of time.”

The clean-up project will focus on 336(e), and the IRS isn't currently sure if it will go broader than that. Weiss said the agency is currently “working on” the project, but that he doesn't have a sense of when it will be completed.

Creeping Dispositions

Some of the types of questions that they will look for include those related to “creeping dispositions,” which refers to situations when dispositions occur on different dates.

“Say you sell enough stock to deconsolidate you on day one, but not enough to cross the 80 percent threshold,” Weiss said. “The question is what happens to you in between. If you're a consolidated target, what group are you a member of? If you have inter-group transactions, how do you report that?”

Related Parties

Weiss also said the clean-up project may address an already relaxed provision of the regulations related to partnerships.

“The final regs gave a little safe harbor of 5 percent for partnership attribution,” Weiss said. “We've gotten comments that said, ‘Thank you for giving us something, but it's not as practical as it could be if it were a bigger something.’ So that might be the type of issue that we would consider.”

Weiss added that Section 336(e) “builds off of” Section 338(h)(10), and utilizes the same definition of related party.

The issue of cross-border transactions won't be addressed as part of this project, but it is on the government's radar, Weiss said.

“At some point in the future, maybe we will take that on,” he said.

To contact the reporter on this story: David McAfee in Los Angeles at mailto:dmcafee@bna.com

To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com